Plan ahead for your fixed rate expiry.

On a fixed rate mortgage? Start planning for your rate change…

With approximately 800,000 fixed rate mortgages due to expire in the coming year in Australia many mortgage holders will feel strain of much higher repayments.

This week’s meeting of the Reserve Bank of Australia increase the cash rate by a further 0.25% and in hinted at more to come in his statement “The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary.”

With the latest February rate increase taking many lender variable rates above 5% those borrowers currently on fixed rates will see significant increase in their contracted payments.

Be aware.

Even if your fixed rate is not due to end for a year or two you should start preparing now for the increase. Start to enquire what the financial impact to yu will be at the expiry date. You can use our online calculator to work out your repayments, simply put in your current balance, term remaining and rate.

Over the last few years many borrowers have taken advantage of the record low fixed rate that were on offer and either completely fixed or partially fixed their home loans for 2, 3 or 4 years. With most of these rates being around 2% and many as low as 1.8%.

What is the impact of coming out of a fixed rate?

If you’ve got a fixed rate, you really need to understand what the dollar increase and start budgetting towards that amount, For example, if you have a fixed rate of 1.99% on a $500,000 mortgage (30 year term) then you would be paying with this week’s rate increase you would be paying *$1,846 per month. If your mortgage was to come off that rate this week and revert to a 5,14% variable rate then your current balance would be approximately $475,130 and our new monthly payment would be *$2,811 per month.

Take action

Our broker, Paul Fox, recommends that you start to take action as soon as possible “Many borrowers will see their payments increase by over a third so being prepared and taking steps now to increase your payments can take some of the shock out of the increase. It’s important though that you make sure that your fixed rate home loan allows for additional repayments.”

“Slowly increasing your repayments will have a postive effect and wil put you in a stronger position for when your fixed rate expires. These additional repayments can assit in reducing the term of the loan or giving you some additional redraw availabilty if needed. “

Another factor he says to consider is if you have a split loan (part varibale and part fixed) “Additional repayments into the higher rate product makes more sense as the lower the principal amount the less you wil pay in interest.”

He recommends the following steps:

  • Calculate your future higher payments and start to increase your payments (remember to check that your loan allows additional payments).
  • Review your options before expiry – book in with an accredited broker who will be able to do a pricing request to your current lender and can also compare that against the best options available.

Financial stress

It’s important if you are going to struggle to meet your mortgage obligations that you seek assistance quickly. Your lender will have a hardship team able to work with you to try and find a solution.

Need assistance

We don’t charge for our home loan services, to get in touch you can call the office on 08 9304 9682

*figures quoted are for general illustration only.

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